Academics at the University of Cambridge have warned of an approaching “carbon bubble” that could trigger a global financial crisis as energy efficiency and renewables trigger a drop in demand for fossil fuels.

Writing in scientific journal Nature Climate Change, the researchers called for a “carefully managed” shift to low-carbon investments and policies to deflate the bubble.

Computer simulations created by economists and policy experts suggest that fossil fuels could shift from being high-value assets to becoming stranded, low-value assets before 2035.

They predict between $1 trillion (£750 billion) and $4 trillion could be wiped off the value of the global economy in fossil fuel assets, compared with the $250 billion loss that triggered the 2008 banking crisis.

Bubble could form even without climate policies

Jorge Viñuales, founder of the Centre for Environment, Energy & Natural Resource Governance at the University of Cambridge, said: “Our analysis suggests that, contrary to investor expectations, the stranding of fossil fuels assets may happen even without new climate policies.

“This suggests a carbon bubble is forming and it is likely to burst.

“Individual nations cannot avoid the situation by ignoring the Paris Agreement or burying their heads in coal and tar sands.”

> Read the University of Cambridge's announcement